Wednesday, July 18, 2012

Weakened Domestic demand in Nordic’s biggest Economies

Tighter Monetary Policy has not only Weakened Domestic demand in Nordic’s biggest Economies, but has also put a Brake on Region’s overall Growth Momentum. Is Nordic slipping back into recession? 

While the central bank of Sweden didn’t respond to the queries sent by B&E (till the time this magazine went to print), Øystein Sjølie, Communication Advisor at Norges Bank, parried our queries: “We are not authorised to comment on the economic situation of the country.” However, central banks of Finland and Denmark were at least brave enough to accept the fact. “Public finances have weakened substantially as a result of the recession, from a surplus of more than 3% of GDP in 2008 to a deficit of 2.8% in 2009 and just over 5.5% in 2010. The deterioration is not only caused by the automatic effects on both the revenue and expenditure sides, but also by considerable fiscal easing and public investments. In view of the prospects of dampened growth and continued deterioration of the labour market, the government deficit is expected to remain large with the public sector’s debt too rising sharply,” agrees Merete Lucie Trojahn, spokesperson, Danmarks Nationalbank to B&E.

Even Tuomas Saarenheimo, Head of Monetary Policy and Research Department, Bank of Finland accepts the fact to B&E that the Finnish economy has been hard hit by the global financial crisis. And why not? The share of exports, which was more than 40 % of GDP (in volume terms) before the crisis burst out, has declined by nearly 25% in volume terms in 2009. But he also gives the other point of view, “Although the current state of the Finnish economy is much less gloomier than it looked like about half a year ago, one should remember that Finland is still highly dependent on the overall development of the world economy and world trade. If the world economy continues to recover, the Finnish firms are in a good position to benefit from increasing demand in the export markets or vice versa.”

Though Denmark and Norway saw their real GDP rising during the first quarter of 2010, the scenario here too looks bleak as high-frequency data by Moody’s Economy.com points towards a slowdown in these economies in the near future. In fact, manufacturing purchasing managers’ indices for Denmark and Norway have been trending weaker since March 2010. Further, rising levels of household debt too posses a threat to the region’s recovery in the long term. While household debt is 167% of disposable income in Sweden (compared to 104% a decade earlier), the ratio has almost doubled in Finland to 107% in 2009 from 65% in 2000. Even in Norway, the debt ratio is expected to reach 197% of disposable incomes by 2010 end, up 14.5% from 2005 level.

No doubt, one way out of the chaos is to ease the monetary policy; but then, it might fall back on the policy makers as it could further bloat the new housing bubble which is in the making in most of the Nordic countries. A closer look at the numbers and one can clearly assess the real threat. While existing home prices in Norway and Sweden have risen substantially by 10.8% and 10.7%, respectively, in Q1 2010 from year-ago levels, they have gone up by 10% in Finland, after surging a record 11.4% in Q1 2010.

All this clearly points towards a real estate bubble that could further undermine the region’s recovery and weaken consumption, if and when it bursts. If experts are to believed, then the houses are expected to lose a fifth of their value in the next 3-5 years. And if that happens, chances are that Nordic region might slip back into recession and this time a prolonged one. “A 20% drop would probably be instrumental in bringing on, or deepening, a double-dip recession,” Par Magnusson, the chief Nordic economist at RBS in Stockholm tells B&E. Certainly, it seems that winter has already started in Nordic, though this time a little early!



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Tuesday, July 17, 2012

Neighbour’s envy. Hooda’s pride. That’s Haryana!

At the recently concluded India-Japan Global Partnership Summit in Tokyo, Haryana’s Chief Minister Bhupinder Singh Hooda, made a strong pitch for investment in his State. In an exclusive interaction with B&E, Hooda says the state’s strong industrial base, infrastructure and agriculture are its drawing card.

Chief Minister Bhupinder Singh Hooda is just back from his visit to Japan after leading a high-powered delegation to the India-Japan Global Partnership Summit in Tokyo. Haryana already tops the list of investments from Japan in India and the state expects a lot more in the coming years. Almost 70% of the state’s population is still dependent on agriculture but the spate of development and industrial growth that Haryana has witnessed in recent years is nothing short of impressive. The industrial drive, which began around the new millennium has, under the leadership of Hooda, gathered greater force and momentum along the way. In fact, the state’s economic growth and multifaceted development is often cited by the ruling Congress-led UPA government at the Centre as a standing example for other states to follow.

In an exclusive interaction with B&E, Hooda says the response he received from Japanese investors looking to invest in Haryana was more than encouraging. “For Japan, Haryana is a different ball game altogether,” says Hooda. With one-third of Haryana falling under the National Capital Region, the state has been able to attract sizable investments from multinational companies, large business houses, foreign investors, NRIs and small scale entrepreneurs. Today, the state encourages industrial policies that are environment friendly and conducive for investment.

“The key focus of investments here is on small and medium enterprises, so that the people of Haryana also get more opportunities for employment and a better life,” says Hooda. During the visit, Hooda also met with Japan’s Prime Minister Yoshihiko Noda and sought his help in spurring Japanese investment and flow of technology to creating new capacities in Haryana’s manufacturing and infrastructure sectors. The chief minister took great pains in highlighting Haryana’s sound economic indices – its high per capita income, decent industrial infrastructure, strong manufacturing base, advanced agriculture sector and vibrant service sector – to impress upon Japanese investors to step up their investments in the state. Haryana enjoys a particularly strong reputation in manufacturing sectors like automobiles & auto components, light engineering goods, IT & ITeS, textiles & apparel and electrical & electronic goods.

As per a research study of the National Council of Applied Economic Research (NCAER), Haryana ranks number one on Per Capita-Net State Domestic Product (PC-NSDP) among major States. The Gross Domestic Product (GDP) of Haryana is expected to grow at 9% during 2010-11, per capita income at 7.2% and revenue receipts at 23.7% against 13.8% in 2009-10. Another study published by industry trade body Assocham points out that Haryana stands out among all States for showing the highest implementation rate of 81% on the pledged investments. Even though the protracted slowdown in the global economy is having an adverse effect on several industries, especially those from the MSME sector, Haryana has responded to the call by taking timely measures. “Even during the peak slowdown period, we took various steps which have led to the maturity of 70% of the investment proposals during 2008-09,” Hooda tells B&E. “This level of investment maturity was the highest in the country during the period,” he adds. A recent report by the Confederation of Indian Industries (CII) states that the performance of the service sector in Haryana has helped the state post higher than national GDP growth between 2004-05 and 2009-10.

Born to a renowned freedom fighter, Choudhary Ranbir Singh, in Sanghi village of Rohtak in Haryana, Hooda got his first opportunity to lead the state government as chief minister in March, 2005. He created a history of sorts in the Haryana assembly elections of 2009, when he once again led the Congress to victory. Since 1972, no party had returned to power in Haryana. An alumnus of Sainik School, Kunjpura, in the Karnal district of Haryana, and a graduate from the University of Delhi, Hooda is a veteran politician who was a Member of Parliament in the Lok Sabha for four terms in 1991, 1996, 1998 and 2004. He served as Leader of the Opposition in Haryana’s Legislative Assembly from 2001 to 2004. Earlier he was President of the Haryana Pradesh Congress Committee (HPCC) from 1996 to 2001 and has had the distinction of defeating the late Chaudhary Devi Lal, a stalwart politician from Haryana, in electoral battles fought in the Jat heartland of Rohtak for three consecutive Lok Sabha terms.

Haryana’s success in building its image as a state that stands apart from the others – especially in terms of investments, industrialisation and development – can be attributed largely to Hooda’s ability in attracting investment through investor-friendly policies and timely, smooth delivery of services. “We have made concerted efforts to remove bottlenecks for the smooth operation of industries,” says Hooda. During his tenure as CM, the state government has enacted the Industrial Promotion Act 2005, introduced self-certification schemes and made provisions for providing a conducive and enabling environment for investors.

The state’s policies on land acquisition have also won plaudits. Haryana offers the highest market rates in the country for land acquired from farmers for development projects. Still, there have been instances of protests against these very policies. Hooda says he believes that there is always scope for improvement and assures that his government is taking all possible measures to ensure that outstanding issues are resolved at the earliest. “Please remember that this state was the first to introduce the concept of annuity payments in lieu of land acquisition from farmers,” Hooda points out. Many suggest the state’s annuity payment concept for land acquisition, where the compensation is based on annuity and value-added market price of the land, can serve as a practical model for other states. Apart from offering lump sum compensation, it provides a 33-year annuity, annual hike, plots, jobs and even a 20% incentive for a no-litigation agreement.



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Monday, July 16, 2012

if the government wants to achieve this desired growth, it certainly needs to undertake immediate reforms to augment domestic coal supply

To meet the growing demand of electricity in the country, the approach paper of 12th Five year Plan (2012-2017) targets to set up 100 GW of capacity. However, if the government wants to achieve this desired growth, it certainly needs to undertake immediate reforms to augment domestic coal supply. 

The issue of coal availability also assumes significance because to sustain the economic growth rate of 8-9% over the next few decades, India has to invariably depend on coal. While demand for coal from the power sector is set to grow by around 10% (driven by new capacity additions), the supply through domestic production is seen at around 7-8%. However, it is still difficult to understand who is to be blamed. And if analysts are to be believed, coal demand and, hence, coal prices are only going to rise because the existing demand-supply mismatch is only going to get worse. According to the BP Statistical Review of World Energy 2011, while global coal production grew 6.3% between 2009 & 2010, consumption rose by 7.6%. In India too, the rapidly rising demand is seeing an increasing dependence on imports. Coal imports this year are estimated to be a whopping 84 MT, a figure likely to double in the next two years. In fact, as per data available with the Commerce Ministry, $8,183.38 million was shelled out in FY2010 for importing coal. Well, this figure has already reached $6,993.69 million in FY2011.

In view of growing mismatch between demand and supply, the government is said to be in plans to allow private companies into commercial coal mining. Mining giants like BHP Bilton, Rio Tinto, and Sesa Goa are expected to be allowed access to captive coal blocks reserved for cement, steel and power sectors. Having faced stiff opposition to this proposal from the Left in Parliament earlier, the government is now in plans to achieve the same without having to face the Parliament. Under the captive mining policy, coal blocks are offered to private players in approved end-user segments like cement, power, steel, syngas and liquefaction. These firms, in turn, are free to form joint ventures in mining. Even under the auction route, only these sectors are eligible to participate. As per sources, the coal ministry has already sought legal opinion on its plans to allot captive coal blocks to private miners on the condition that they tie up with approved end users for supply. There are also plans to review the current coal distribution policy to ensure that priority sectors get adequate fuel. Capacity addition in India’s electricity sector in the 12th Plan (2012-17) too runs the risk of getting derailed due to uncertain domestic availability and volatile international prices of coal, unless immediate reforms are undertaken to augment coal supply, warns a paper by industry chamber FICCI and consultant in energy sector ICF. In fact, the paper asks for allowing captive mines to sell surplus coal at market prices to incentivise additional production and full-scale commercial mining at market prices through amendment in the Mines & Minerals (Development & Regulation) Act.



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Saturday, July 14, 2012

Responsible leaders have to also look at comprehnsive stakeholder engagement

Leaders have to give the employees confidence that they will always be there for them under any circumstance provided they perform with complete dedication. Responsible leaders have to also look at comprehnsive stakeholder engagement and look to give back to society

In my dictionary, success is never about luck. It is all about “preparation” meeting “opportunity”. People who are prepared to seize their moment when it comes have been at the helm of landmark changes in society throughout the course of human history. And it is not just about those very obvious names through history like Mahatma Gandhi and Nelson Mandela. There are many people in various spheres who have created immense value for their organisations by being in the right place at the right time and also by maintaining the right kind of positive mindset.

Youngsters in today’s highly competitive world, where you are said to be either in the rat race or out of it, may find it hard to agree, but successful and fulfilling leadership is always about the right ethics and values. For instance, it is about what decision you take if your competitor does something unethical. Logically, you would like to follow suit, since refraining from doing so can lead to some depletion in your competitive positioning within the organisation. But one can also be profitable while remaining ethical.

As it is, a business can never be run on a short term basis. Short term plans can never take precedence over your long term goals. While compromising on ethics and values can give you short term results, glory in the long term belongs to those who play fair , who play the game of business according to RULES even when their competitors do not. For the community at large ultimately trusts and rewards the company that has an unblemished track record and an unflinching commitment to the larger good. Our group’s own experiences illustrate this very aptly. For instance, in the states of Bihar/Jharkhand, there was a lot of unrest that threatened companies operating there, but the Tata Group’s operations were not affected. The reason was that the concerned communities knew that our exit would also seriously affect our social activities in the area. And if that happened, the insurgents would themselves lose their support base in the region as a consequence.

And once you acquire wealth, it is your responsibility to give back to society individually or through your organisation. You have to keep yourself well aware of the situation that exists in the community around you and work towards their overall welfare. Leaders have to necessarily initiate and also lead the implementation of triple bottom lines in their organisations and know that every helping hand counts in the noble endeavour to improve the quality of life of people around you.

It is important that you have regular social audits and also ensure that the locals are deeply involved in the initiatives being taken for their welfare. More importantly, you have to believe that you are leaders of tomorrow for the 1 billion plus Indians and you are responsible for their welfare. If its leaders act ethically and responsibly, India will become the happy nation that J. R. D. Tata envisioned. For him that was far more important as an objective as compared to becoming an economic superpower. 


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Friday, July 13, 2012

Absoulte GDP and GDP growth rates are often correlated to overall economic prosperity of nations.

Jeffrey D. Sachs, in his article titled Economics of Happiness, writes, “In the US, GNP has risen sharply in the past 40 years, but happiness has not. Instead, single-minded pursuit of GNP has led to great inequalities of wealth and power, fueled the growth of a vast underclass, trapped millions of children in poverty and caused serious environmental degradation”. This can be corroborated with the recent Wall Street Protests that speak volumes about the gloomy social condition of the US. So much so that a time series data analysis shows how the rich-poor divide has widen in the county and how the economic policies (that eventually escalated the economic growth) were always inclined towards the richest 1% of the population. Today, America is one of the riskiest nations with a high intentional homicide rate (4.8, more than a country like Bangladesh) and crime rate (the national crime rate was 3466 crimes per 100,000 residents as of 2009). The same goes for Norway. Norway boasts of having the world second highest per capita income ($84,144 per year) and tops the UNDP’s Human Development Score card. But it again fails to defend its reputation on the Happy Planet Index (wherein it ranks 88). Norway’s government is struggling with an increasing use of weapons during thefts & robberies and also an increasing crime rate.

One country that is trying to desist from the GDP obsession and promote Gross National Happiness is Bhutan. The country is trying to achieve overall happiness by adopting policies that promote culture, mental health, community development and social growth. Also, the nations that top the Happy Planet Index do not necessarily have very impressive economic variables. One such nation is Costa Rica. It has a per capita income of just $7,701, but has one of the highest life satisfaction rates and one of the longest life expectancy rates in world. Similarly, Cuba scores poorly on HDI and has merely $5,565 per year as per capita income, but fares better than the crony capitalists of the world. The intentional homicide rate is lower than the richest countries, the Gini Coefficent is better than many developed countries and life expectancy rates are better than US. Costa Rica’s rising education levels allow it to rank higher than US in the World Economic Forum gender gap index. Even the Environmental Performance Index ranks Costa Rica significantly better than other developed nations.

A disaster (like the recent recession) does provides avenues for economic development, but it isn’t a meaningful end in itself. Most countries that try to achieve high growth rates at the cost of social well-being fail to create an ambience for holistic social development – and revolts going on across the developed world substantiate this. It’s imperative for nations to reconsider how they calculate, or even benchmark overall prosperity.



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Thursday, July 12, 2012

Fourth time unlucky. Fair, was that?

The refusal of bail to DMK leader Kanimozhi and others accused in the 2G scam by a CBI court has evoked reactions from legal eagles on whether the order violates the judicial norm of according bail to accused, once investigations are complete and trial is set to begin.

It was a welcome that was never meant to be. November 5, 2011, was expected to be a day of celebrations for the DMK in Chennai, as it was widely believed that the bail petition of M.K. Kanimozhi, daughter of DMK supremo M. Karunanidhi, would be approved, especially since the Central Bureau of Investigation (CBI), the prosecuting agency, had not objected to pleas for bail by her and four others. Since May this year, Kanimozhi has been in judicial custody in Delhi’s Tihar Jail in connection with the infamous 2G scam. As it happened, the much anticipated relief from the court never came about. On November 4, Special Judge O.P. Saini, heading the CBI Special Court, struck down the bail applications of Kanimozhi and seven others at a packed trial courtroom at the Patiala House complex in Delhi. Kanimozhi – who was otherwise relaxed and calm before the court session began – broke down as her husband G. Aravindan, mother Rajathi Ammal and 11-year-old son tried to console her. This was the fourth time that Kanimozhi’s bail plea was rejected. It was first rejected by a special CBI court, then by the Delhi High Court and then the Supreme Court.

In dismissing Kanimozhi’s bail application along with that of seven others, Judge Saini cited “the very serious nature of the charges” against them, even though the prosecutor had not opposed the bail pleas of most of the accused. Rejecting the contention that the accused should be given bail as the offence was not one punishable with death or life imprisonment, the court’s response was uncharacteristically harsh. “Merely because the offence is not one punishable with death or life imprisonment, the accused is not entitled to bail as a matter of right. If the allegations so warrant, bail may properly be refused even in case of the non-bailable offence not punishable with death or life imprisonment,” stated the Special CBI court. Terming the case, as one of unprecedented nature, Justice Saini observed that, “The facts and circumstances of the case itself suggest that the witnesses would be under a lot of pressure, given the serious consequences of the case for the parties. This is further compounded by the fact that the witnesses are employees, relatives, family members, colleagues and subordinates of the accused persons.”

The court also refused to draw a distinction made by the CBI in not opposing bail to those who were included as accused (Kanimozhi and four others, Asif Balwa, Rajeev Aggarwal, Karim Morani and Sharad Kumar) in the supplementary charge sheet, as they had been charged with a lesser offence punishable with imprisonment for five years, and those cited as accused in the main charge sheet. The court noted that once the supplementary charge sheet was merged with the main charge sheet, there was only one charge sheet and no distinction could be made on the basis of separate charge sheets.


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Drunk pilots should be jailed

But this rule had many loopholes. We mentioned in our previous article, “In spite of alcohol tests being mandatory, airlines take a lenient stance to keep the schedules of flights intact”. Even though drunk pilots would like to claim that they did not break any law as they had been caught before take off, no leniency should be entertained from pilots or airlines.

We would also like to applaud the decision of the aviation ministry to make drinking before flights a legal offence for pilots with criminal culpability. In addition to that, the law has also empowered DGCA to take criminal action. But still, our demand has not been fulfilled completely. The law should be amended to include post-flight breath tests also as we highlighted in our story, “Till now, the DGCA has been monitoring pilots through breath analysers before the flight, without keeping a check on whether the pilot drinks during the flight”. In closed cockpits, that is very much a possibility. So the ministry still needs to go another step beyond their current “zero tolerance” level on aviation safety!



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